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7 Ways Warehouse Clubs Make You Spend More Money

We've uncovered some tricks that retailers use to make those alluring wholesale prices much less consumer-friendly.
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By Aaron Crowe, DealNews Contributing Writer

Unless I leave my wallet at home, I can never make a trip to Costco without spending $100. It's simply not possible. I may go there with a shopping list and be determined to stick to it, but every time I leave with more goods than I expected to buy.

What pull does Costco have over my wallet, and how do wholesale warehouse clubs get shoppers to spend more than they've planned to? We uncovered a few factors that make up the allure of wholesale pricing. Make yourself aware of them, and maybe you'll avoid buying more than you need.

Membership Fees and Low Prices Add Up

People shop in bulk to save money, but low prices aren't the only way wholesale or warehouse stores entice shoppers to spend. Costco makes most of its money from annual membership fees, which help it maintain its low prices. Those low prices in turn make customers feel like they're getting a good deal upon just walking in the door; but lots of low prices add up and customers end up buying just a little bit more than they immediately need, says psychotherapist Judy Belmont. "It's unbelievable how low some of those prices are," Belmont says. "So people do end up spending a lot more."

Shop at Your Own Pace

It probably hasn't occurred to many shoppers that there's no music playing in the background at many wholesale clubs. "They want you in that store forever," behavioral and marketing psychologist Elliott Jaffa says. "There's no fast music to make you shop faster or slow music to encourage you to meander through the store." It's as if time becomes suspended in the endless aisles.

Large Quantities and Sizes Can Disguise Unit Prices

If bigger is better, then buying more of something bigger comes at that much more of a savings, right? Unfortunately, this isn't always the case. The sizes and quantities of bulk products are not what people are used to, Jaffa says, so three pounds of cream cheese looks like a deal worth buying. Never mind that you may never use all of that cream cheese before it goes bad. You have to look at the unit prices — sometimes marked, sometimes not — and compare it to other stores' unit prices to figure out if you are truly getting a good deal. "I've got to believe [Costco] has some of the best psychologists in the country working for them," he says, "because it has the best suppliers and know how to price everything."

Product Placement Is Everything

Whether it's a warehouse club or a grocery store, product placement is key to getting shoppers to buy, says Rob Jager, a business and management consultant who has worked for numerous big-box retailers. Cameras, computers, and other electronics don't provide a large profit margin for stores. To compensate, they position these items at the front of the store so that they at least see a lot of turnover.

The ends of aisles, or "end caps" as they're known, are prominent spaces that suppliers often pay for. Signage may make you think end cap products are great deals, but check twice before loading them into your cart. "I think shoppers have been trained to believe [end caps are] where the deals are," he says. But it might just be that that's where the ad dollars are going.

Shopping at Costco Is Like Being on a Treasure Hunt

Since stores like Sam's Club, Costco, and BJ's Wholesale Club change out their merchandise often, you never know if what you see on sale today will be there tomorrow. Finding new things in a warehouse club is an on-going treasure hunt and gives shoppers a sense of intrigue when they walk in.

Marketing expert Harry Beckwith, who has Costco as a client, says that his best friend can't go to Costco without recounting the incredible deals he got there. This friend is wealthy but shops at Costco because it makes him feel clever and smart. It turns shopping — something he normally dislikes — into a game he loves.

Buying a Lot to Avoid Return Trips

Face it, walking through a huge store can be a hassle. The parking lot is usually packed, the store is full of people pushing huge carts that are difficult to maneuver, and checkout lines are sometimes endless. It's not an easy trip, so once there, many customers find it smart to make the best of it and buy as much as they need in order to avoid making another trip any time soon.

Cashing in on Customized Deals

Sam's Club, for one, gets members to buy more by tracking their prior purchasing patterns and offering customized deals, says Bruce D. Sanders, a consumer psychologist and retailing consultant. The Sam's Club program, which requires an extra annual fee, uses predictive analytics to determine what items are attractive to individual customers, and then offers discounts on those items. Consumers also receive discounts on items they've never bought before, but that which are logical future purchases based on a consumer's history. This "endowment effect" encourages shoppers to buy more because they've paid for the privilege to get rewards and are motivated to cash in on such programs, Sanders said.

If you're aware of the ways in which wholesale clubs tempt the everyday shopper, you may be able to save even more money. By sticking to a list, allotting yourself a set amount of time, and only carrying cash, you can avoid the temptations that these stores present.

Note that this feature has been updated since it was originally published last year.


Please note that, although prices sometimes fluctuate or expire unexpectedly, all products and deals mentioned in this feature were available at the lowest total price we could find at the time of publication (unless otherwise specified).
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11 comments
rockvarg60
They missed the art merchandising that is employed. Costco stores are designed to make you drop your list. In the front of the store you must pass through the gauntlet of aspirational items, next the wants and finally way in the back needs!
Greg the Gruesome
@latintrident "Yeah, $55 for a membership but how often does Dealnews run promos on cheaper memberships with coupons, chicken, and water? A lot."

I wish. I keep waiting for that deal to appear again. :(

@Harry Hall "Did you know they use nitrogen when they inflate tires in their tire shop?"

I've read (in Consumer Reports, IIRC) that nitrogen in your tires isn't all that much better than plain air.
de1337er
Feels biased against Costco, but maybe that's because a lot of the commenters are saying how good Costco is and that's the feeling I picked up after reading the article and the comments. I have to say Costco has always been good in my experience.

The article as a whole is funny though. I mean, dealnews is telling us how to save money but I'm under the impression dealnews makes most of its money off of affiliate sales. Regardless, if anyone is putting pressure on someone to buy something it's dealnews.
vwoom
Costco is wonderful. I buy their "Top Tier" 87 RON gas weekly, at same gas stop I go in and watch out for rebate stuffs aka on sale (an incentive for me to buy and try) or other rare items. Other than the regular foodstuffs I buy (Sunrise Energy Bars, fruits, Costco Seasoned Rotisserie Chicken, etc) I ALWAYS use the now coupon-less items that catches my fancy, included on every monthly Costco coupon booklet. Also, the price of my 55" LG 55LA6970 that I paid for from Costco.com, with free shipping to my door...is still unbeatable up to this date (my previous Samsung WS CRT that lasted 12yrs, came also from Costco). I even availed of Square Trade warranty for the LG (I typically NEVER buy extended warranties)..but hey, $59 for an additional 3yrs (1st yr by LG, 2nd yr by AMEX/Costco..).
Ilikecalvin
Costco prices their merchandise 15% above their costs across the board. This saves them money by NOT having to price each item individually. 80% of their profit is from the membership fee. They have no incentive to price each item like every other retail store. The 15% rule is why apple products are no longer carried at Costco, apple doesn't want their products discounted to the point of losing their premium merchandise status.
Ilikecalvin
Costco prices their merchandise 15% above their costs across the board. This saves them money by NOT having to price each item individually. 80% of their profit is from the membership fee. They have no incentive to price each item like every other retail store. The 15% rule is why apple products are no longer carried at costco, apple doesn't want their products discounted to the point of losing their premium merchandise status.
Harry Hall
We love Costco. For paper goods, fruit and wine they are great. Their own brand men's clothing is typically excellent quality and very inexpensive. Their pima T-shirts are TDF.

Did you know they're the largest wine retailer in the USA? Did you know they use nitrogen when they inflate tires in their tire shop?
Did you know they have been selling that Polish/Hot-dog & soda combo for $1.50 since 1985?

In the US, eighty-five percent of Costco's workers have health insurance, not sure why it's not 100%, but it's higher than Walmart's 50%.

A tip - if you see something that you really like and wonder how long they will have it, an asterix on the price card tells you this is the last you will see of the product.

Costco isn't perfect, but compared to Sam's Club they are heaven. And yes - it is one of my happy places ;)
brutus001
i agree with trident. no one makes you spend more money. but the writer does make some good points, especially about the unit price of items. we usually get produce with is much cheaper than the grocery stores. also, beers per unit it much cheaper as well. there are great deals if you are smart and do your research. plus, if you get the AMEX card, that will help offset the membership costs as well.
latintrident
The title is so misleading. Stores never MAKE you spend more money. It is a lack of discipline that leads to you spending more money. I'm calling you out Aaron. You are undisciplined financially.

That being said. I've been a member for Costco for years and used to go there when I was little when it was still Price Club. Yeah, $55 for a membership but how often does Dealnews run promos on cheaper memberships with coupons, chicken, and water? A lot. Is the membership worth it? Let me share some examples.

Rent your cars through Costco when traveling: You can save a lot of money (about 25%) on car rentals through Costco. They negotiate some of the better fees that not even managers at these car rental places get! I saved over $60 on a car rental in SFO during a 3 day visit!

Return policy: I've returned items over 1 year of having it. Used, lightly used, never opened - they'll take it (except for electronics). Good luck doing that elsewhere.

Hope this helps. Very uninformed writer.
gbirulkin
Sams Club cashiers are fired or not promoted if they don't sell a set numbers of higher cost memberships, these new higher cost memberships will in which almost never return the cost of increase membership fees, hurt the customers & honest cashiers. It's a Ripoff!!! It's Criminal....
LonnieMcClure
Regarding not being able to use a 4 pack of 32 oz. bottles of ketchup before they go bad, perhaps a better example should have been used.

Even as an individual, I have no problem using a 64 oz. bottle of ketchup before it goes bad, so I doubt a family of 3 or more would have a problem using a total of 128 ounces in a similar time frame (and likely less).
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